By Dale Critchley, Policy Manager at Aviva
Aviva surveyed 2,000 UK employees working in organisation with over 1,000 employees in February 2020i on a range of attitudes to work, life and retirement, little knowing that wholesale changes were just around the corner. By surveying again in August, we were able to see the impact of living with Coronavirus. Full details are in our report, Embracing the Age of Ambiguity.
When it comes to when workers expect to retire, we found that all age groups have pushed their retirement dates back, but younger workers are particularly pessimistic.
Only 28% of employees under the age of 25 see themselves retiring before the age of 65 (vs 43% in February), and 41% of employees under the age of 25 expect to work until at least 70 (vs 33% in February).
Even with new target dates in place, there’s been a decline in confidence that people will be able to achieve their aims.
So, what is it about lockdown that’s driven the change? People in the private sector are largely saving into defined contribution pensions, where outcomes have always been ambiguous.
What we saw when we looked at the data was a decline in confidence, for example in how much people needed to save for retirement, only the over 45s maintained pre-coronavirus confidence levels.
We looked at whether this drop in confidence was related to a knock to current finances, but there’s a mixed picture on that. Financially, more people feel better off than worse off post lockdown. Again, confidence has taken a knock though, with fewer people feeling they’re capable of withstanding any sudden shocks to their family finances.
What I think we’ve seen is that the under-45s in particular are looking at retirement through a new lens. Millions of people have learned what life without going to work looks like. Whether that’s working from home with a different work / life balance, or having time on their hands through furlough. People now have a greater appreciation of what life without work, or what a transition to part time working might look like.
Some 84% of people now see themselves as retiring gradually, with more than half of more wealthy employees seeing retirement as a chance to work differently rather that rest up.
When it comes to income in retirement, the furlough system pays 80% of earnings, not the traditional 2/3rds retirement rule of thumb or the £759.20 a month state pension. This could be providing a relatable benchmark for future plans.
In many respects, lockdown provided a reality check and introduced clearer insight into our rough retirement plans, maybe calling into question previous arithmetic. If you add into the mix that employees are trying to compute a value 20 to 50 years into the future, against a background of near term uncertainty, and what we’ve perhaps seen is a realisation that we don’t have enough information to produce an updated plan for our new version of retirement.
Our natural reaction when concerned about excessive ambiguity is to imagine the worst-case scenario. Younger people tend to be the most pessimistic about their retirement prospects, but they have the least data to build a more realistic view of the future.
The good news is that realising what you don’t know is the first step on the road to setting realistic targets.
The job of the pensions industry is to provide people with the support, information and tools they need to fill in the gaps and build a future plan based on engagement and best estimates, rather than worry and a worst-case scenario.
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